Romania, Economy

Before World War II, the Romanian economy was primarily agricultural. In 1948 the Communist government came to power and took control of nearly all aspects of the economy. Through a series of five-year plans, the Communists transformed Romania into an industrial nation. The economy grew considerably during the first part of the Communist period, but by the 1980s it had slid into decline, and shortages of consumer goods and degradation of the environment had become widespread. After the Communist government was overthrown in 1989, the Romanian economy virtually collapsed. Although dominated by former Communists, the new government began taking steps to reform the economy in the early 1990s. These steps included devaluing the national currency, removing government subsidies on most consumer goods, and converting some state-owned companies to private ownership.

The Romanian economy declined considerably in the early 1990s. After several years of decline, the gross domestic product (GDP) increased by about 1 percent in 1993. In May 1994 the International Monetary Fund (IMF) issued the Romanian government a $700 million loan, which helped to lower the country’s inflation rate by 1995. Although Romania’s private sector grew considerably, especially in the area of services, most of the country’s industrial production remained in state hands in 1995. This provoked concern among international lenders, with the IMF suspending further loans, and hindered Romania’s efforts to attract foreign investment.

In June 1995 the Romanian parliament passed a mass privatization program with the goal of transferring more than 2,000 companies to private ownership. Due to the continued slow pace of economic reform, however, the IMF did not resume disbursing loans to Romania in 1996, and foreign investment remained negligible. In 1997 the Romanian government promised to institute rigorous reforms and the IMF responded by awarding the country a $430 million loan. However, the government only succeeded in lifting price controls before privatization bogged down again. In January 1998 the IMF froze disbursement of loans to Romania once again. Most companies remained in state hands as of early 1999.

Romania is currently a member of the IMF, the International Bank for Reconstruction and Development (World Bank), and the European Bank for Reconstruction and Development (EBRD). Romania became an associate member of the European Union (EU) in February 1993, and in December 1997 the EU invited Romania to begin the process of becoming a full member. No timetable was established at that time for when it would join. A free trade agreement with the European Free Trade Association went into effect in May 1993.